“The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.” ~ Albert Einstein

What is intuition and how might it help or hinder an investor’s decision making process? A good philosopher begins with definitions, otherwise they risk building their argument upon a false premise. Therefore we begin with a broad, conventional definition of intuition from Miriam-Webster:

Intuition: a natural ability or power that makes it possible to know something without any proof or evidence: a feeling that guides a person to act a certain way without fully understanding why.

My intuition tells me that there are several things wrong with this definition. The primary problem is that it is a conventional definition and conventions only cover the surface. So let’s delve deeper by doubting or elaborating upon the last two words, “understanding why.” And where does this “feeling” come from? More importantly, how does one recognize intuition and differentiate it from potentially defeating signals coming from media noise, biases, and ego?

Personally, I do not believe that ideas just magically appear or that they arise from nothing. Roughly one year ago, I interviewed Barry Ritholtz for a writing project and I asked him about intuition in trading: He said, “I suspect the best traders learn to internalize lots of what they have learned over time, and what appears to be intuition is really the result of thousands of hours of hard work, research, practice, and experience.”

This is a good foundation for a practical meaning of intuition. It may appear as a gut feeling. However it is really just a culmination of learned knowledge that we call experience. But how and when can intuition be called upon and applied in the decision making process?

“Basketball is an intricate, high-speed game filled with split-second, spontaneous decisions. But that spontaneity is possible only when everyone first engages in hours of highly repetitive and structured practice—perfecting their shooting, dribbling, and passing and running plays over and over again—and agrees to play a carefully defined role on the court. . . . Spontaneity isn’t random.” ~ Malcolm Gladwell

Seeking is the opposite of finding; thinking gets in the way of feeling. The more you focus on seeking, the more you diminish the capacity for finding. In different words, intuition cannot be “called upon.” Searching for a specific piece of information can ironically make you miss the idea that may actually help you make the best decision.

For example, have you ever tried to recall something and it just would not come to your mind? This typically occurs when in conversation and you say the thought is “on the tip of your tongue” but you just can’t recall it at the moment. Hours or even days later, the information you were seeking seems to suddenly pop into your mind. This is because the part of your brain used for recall is not the same part that produces the answers.

Speaking of recall, some of you may recall the blog, TraderFeed, which combined trading and psychology, authored Dr. Brett Steenbarger, PhD, from 2005 to 2010. In one of his posts, The Role of Intuition in Trading Decisions, Dr. Brett teaches readers that there are two parts of the brain at work with learning:

An interesting research study found that research subjects who took a tranquillizing drug performed worse on a recall task than those that did not take the drug. The subjects who took the drug, however, scored higher in the ability to perceive novel pairs—a task that relied on ‘gut feeling’.

The researchers hypothesize that two different brain systems are at work in learning: one is an explicit system based on recall and reasoning; the other, an implicit system based upon the brain’s reward system. By dampening the explicit learning system, the tranquillizing drug provided subjects with greater access to their gut.

I am no PhD but my simple mind can translate this into the notion that trading is both science and art, either as separate but necessary entities or possibly a synthesis of both. The explicit mind is the reasoning scientist and the implicit mind is the artist on drugs (so to speak). But the artist is the intuitive thinker that is rarely heard because the scientist commands the attention with attractive solutions and demands decisions be made with quantitative data. For the investor, the scientist often speaks louder than the artist.

An Intuitive Summary of Intuition?

And now we arrive at a difficult juncture—how to end this blog post. If I provide more supportive data and a definitive solution, the scientist will ironically crowd out the artist. So after my own scientific research for this particular blog post ended, I did my best to stop thinking about finding a solution. This way perhaps my intuitive mind could fittingly end a blog post about intuition!

So I looked outside of a window near my desk and began watching the colored leaves of a white oak tree slowly fall to the ground. After following one particular leaf complete its descent from beginning to end, my eyes met a pair of squirrels engaging in their hurried late-Autumn activity and, as I began to find myself amused by their…. Aha! My mind was empty and quiet. Or as a scientist might note: the explicit learning system was dampened; access to the gut feeling was enabled; and this nugget of wisdom popped into my mind:

“Freedom from the desire for an answer is essential to the understanding of a problem.” ~ Jiddu Krishnamurti

I am guessing I recalled this piece of useful wisdom because I had stopped the hyper-intentional activity of searching, which presumably awakened the artist needed to finish this post. If there is a way to use this intuitive thinking for investing, or for any other endeavor for that matter, it will not likely come to you by calling upon it.

Instead, try doing your research and analysis first to satisfy your inner scientist. When the analytical work is done, leave it alone for a while and try doing something completely different than investment research before making a decision. Perhaps you could take a walk, read a book, listen to music, meditate or even take a nap. You may be surprised at how productive ideas can come to you because you were not looking for them.

This is the art of intuition that can follow the science of discovery….

What are your thoughts on intuition? How often do your intuitive ideas come to you and how accurate are they? Have you ever ignored a “gut feeling” and regretted it later? How do you balance or combine the science and art of investing?

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Kent Thune is blog author of The Financial Philosopher. You can follow him on Twitter @TheThinkersQuill.

Category: Philosophy, Psychology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “The Art of Intuition and the Science of Discovery”

  1. bigsteve says:

    My work involves process control. Often the processes are very complex and intertwined. Many times I multitask and will complete something complex while thinking on something else. And only realize later that I had finished a task subconsciously .

    Problems will percolate in my mind beneath conscious thought and solutions surface sometimes days later. There is art as well as science in my profession. And the best ones at it are creative. I constantly have to generate and interpret lab data. Often in complex chemical matrices. Most of my interpretation is subconsciously done.

    While I only invest in mutual funds now I use similar thought patterns in investing. I tried to see the whole pattern and what I can do to optimize return based on short term human reactions and long term fundamentals. I have done fair so far. When I retire in a few years I may slowly in a tax efficient way cash out my 457 account and try my hand at directly buying stock. More as a hobby than a real need to generate retirement income. I will have a very good pension that will take care of my simple needs. I have always been a aggressive investor even during crashes and tend to buy more during such times. Markets have during my investing life fallen and rose. One always follows the other. But they have risen more than fallen overall. When I start to buy direct I realize I will have to have a strategy for selling as well as buying. I think this may be fun for me.

  2. unnimama says:

    I find that when I stop actively looking for a solution, but just put the problem somewhere in background processing, a really good solution pops up later. To the extent that now I refuse to accept the immediate solution but will always “sleep on it”. Reminded of that quote (or paraphrase) from Catch-22: “Have you ever gone to bed with a hard problem on your hands and got up in the morning with the solution?”

  3. xynz says:

    I am not a neuroscientist, but I do know a little bit about how the brain works. I also have first hand experience with intuition guiding quantitative analysis. I believe that intuition is a “way of knowing” that takes place in our right brain and it is quite different from the rational, symbol based analysis of the left brain. Because rational, symbol based analysis is our only means of communicating and dissecting knowledge, we struggle to explain our intuitions.

    IMHO, the best illustration of how the right brain struggles to make us aware of what it knows, is what happens sometimes when you are looking for your misplaced keys, eyeglasses or whatever. Your search begins with the left brain in control: a systematic and logical search. When that doesn’t work, your left brain focus on the search might waver and you’ll start thinking of what you need to do after you’ve found the missing item….or what happens if you don’t find it. As your rational thinking process diverges from the search, you’re still searching for the missing item; but it is like you are moving on auto-pilot because you are starting to think of something else. Because your left brain has started to think about something besides the search for the item, your right brain has an opportunity to guide the search. When your left brain realizes that it hasn’t been thinking about what you are looking for and it focuses once again on the search for the item, you find that you are now looking right at the missing item. Your right brain knew where the missing item was located, but it couldn’t communicate that knowledge directly to the left brain (where our rational awareness resides and we live most of our lives); so when your left brain was no longer controlling the search, your right brain was able to literally point you at what you were searching for. As always, YMMV

  4. danm says:

    I believe intuition is clearly undervalued. However there are 2 caveats:

    1. Garbage in, garbage out. If you put decades of bad data in your brain, chances are your intuition will offer you a plethora of wrong answers.

    2. One must always remember that all brains suffer from heuristics. Optical illusions are just a few that can steer you in the wrong direction.

    A few months ago, while reading the Man Who Mistook His Wife for a Hat, I was offered a real eye opener… I’ve been reading on my side for decades, on eye closed before falling asleep. I suddenly realized that propped up and reading with both eyes open, my brain would have absorbed different data and my thoughts today would probably be different.

  5. Yofish says:

    I have not ‘invested’ money in the market since I got out before the last crash. However, I have invested money in tools that might, at age 65, make my future more secure. Though this course is still uncertain, it has been rewarding in subtle ways. I stopped looking for market magic (a solution). I’m also certain that somewhere down the road, ‘a really good solution’ WILL pop up in terms of what to do with my cash . The connection between intuition and the gut is a good one – in my case, I just haven’t had the guts to be in this market.

  6. esop says:

    Today from the George Lakoff Opinion on Truthout

    http://truth-out.org/opinion/item/20268-new-york-times-uncovers-conservative-attacks-then-prints-one-all-on-front-page

    “A common neuroscience estimate is that about 98 percent of thought is unconscious and automatic, carried out by the neural system. Daniel Kahneman has since brought frame-based unconscious thought into the public arena in what he has called “System 1 thinking.” Because frames carry value-based inferences with them, successfully framing public discourse means getting the public to adopt your values, and hence winning over the public by unconscious brain change, not by open discussion of the values inherent in the frames and the values that undergird the frames.

    The reason that those of us in the cognitive and brain sciences write so passionately about framing issues is that unconscious thought and framing are not generally understood – especially in progressive circles. Most progressives who went to college studied what is called Enlightenment reason, a theory of reason coming from Descartes around 1650 – and which was historically important in 1650. The Cartesian theory of how reason works has since been largely disproved in the cognitive and brain sciences.”

    It seems that your frame of reference inferences governs before your power of reason. If you have inferences from Orwell, your intuition may be suspect. However inferences from Socrates or Mr. Ubermensch may be most helpful.

    By the way:

    Kahneman has written of his experience in Nazi-occupied France, explaining in part why he entered the field of psychology:

    It must have been late 1941 or early 1942. Jews were required to wear the Star of David and to obey a 6 p.m. curfew. I had gone to play with a Christian friend and had stayed too late. I turned my brown sweater inside out to walk the few blocks home. As I was walking down an empty street, I saw a German soldier approaching. He was wearing the black uniform that I had been told to fear more than others – the one worn by specially recruited SS soldiers. As I came closer to him, trying to walk fast, I noticed that he was looking at me intently. Then he beckoned me over, picked me up, and hugged me. I was terrified that he would notice the star inside my sweater. He was speaking to me with great emotion, in German. When he put me down, he opened his wallet, showed me a picture of a boy, and gave me some money. I went home more certain than ever that my mother was right: people were endlessly complicated and interesting. (Kahneman, 2003, p. 417)